There's Nothing Unfair About A UK Inheritance Tax Cut

There's a coming cut to inheritance tax arriving in Britain. This is being touted as unfair, will only benefit the rich, will even widen the North South divide, according to the usual suspects. However, what these complaints fail to take into account is that houses are bought out of taxed income--it's many decades since mortgage interest was a tax relief in the UK. Further, people have to pay more to buy those more expensive houses in the South--and they do so out of higher incomes which are generally earned in the South. But note that those higher incomes are taxed at the same national rate. Insisting on collecting more tax out of their estate is double taxation of a very obvious kind as they've already paid considerably more in income tax over the years:

The Tories’ £1billion inheritance tax cut will hand a windfall to just 26,000 people in predominantly Conservative seats, a new analysis shows.

The tax cut comes into force next month and will see couples who pass on homes worth up to £750,000 pay no inheritance duty.

And by 2020 any home worth up to £1million will be exempt from the tax.

Think of a world in which there is no house price inflation. That's obviously not the one we've been inhabiting these past few decades but bear with me for the thought experiment:

A £1bn Conservative inheritance tax cut will exacerbate the north-south divide, an MP has warned, as figures lay bare the winners and losers of a flagship government policy.

People inheriting homes in constituencies in London and south-east England will gain the lion’s share of the benefits from the tax cut, according to research commissioned by the Labour MP Rachel Reeves.

Of the 100 constituencies that will benefit the most, 96 are in London or the south-east and are mostly held by Tories, with 31 in and around London held by Labour.

The facts are not in issue. But think about what they mean. If you live in the South you must pay more for your housing than those in the North. This is the same statement as southern house owners benefit more from the rise in the tax exemption than those in the North. Thus you live in a smaller house with a lower disposable income for the same gross income. And of course incomes are higher in the South to rather make up for this. But they don't entirely do so. London wages are higher than Wakefield for example, but not by enough to cover the difference in house prices.

But then note what the higher incomes mean. We do not have regional variation in income taxes. Thus those on those higher southern incomes are paying rather more in income tax (and national insurance) than those Oop North. Demanding that portion of the house that they bought out of that already taxed income is thus double taxation. And do note again that the wages aren't high enough to cover the property price differences. So they've had a lower real income all those working years as well, living in smaller housing and with less disposable income.

But apparently it's unfair if we don't tax them again at death. The voraciousness of certain politicians for more of our money is remarkable, isn't it?